A 'Sophisticated' State Budget is Not Enough

Finance Minister Purbaya Yudhi Sadewa’s statement that Indonesia’s State Budget (APBN) is one of the ‘most sophisticated’ in Asia is certainly worth examining. This claim is not fiction; in recent years, the APBN has proven to be a capable shock absorber against a series of hits, ranging from the Covid-19 pandemic and global inflation to geopolitical tensions. BPS data (202 and 2026) confirms this, with Indonesia’s economic growth in Q1-2026 surging by 5.61% year-on-year, while the Ministry of Finance successfully kept the fiscal deficit within safe corridors.

However, a crucial question often overlooked by policymakers is: Does a ‘sophisticated’ APBN automatically reflect a ‘strong’ fiscal posture? The answer is: Not necessarily. The strength of fiscal instruments cannot be measured solely by their short-term ability to dampen crises (stabilisers). The primary indicator is the effectiveness of budget utilisation in stimulating long-term economic transformation (accelerators). It is here that structural fiscal flaws begin to emerge.

First, the low tax ratio, which remained stuck around 10%-11% of GDP through 2025, presents a significant challenge. This figure is starkly low compared to the OECD average of 34%, and even lags behind Thailand and Vietnam. Economist Faisal Basri (2024) warned that Indonesia’s main fiscal issue is not the scale of spending, but the weak capacity of state revenue. With a narrow tax base, the government’s manoeuvring space is automatically restricted, potentially trapping the nation in debt dependency to fund development.

Second, there is an anomaly in the expenditure structure, which is dominated by rigid items. Personnel expenses, misdirected energy subsidies, debt interest payments, and Regional Transfer Funds (TKD) consume the largest portions of the APBN. Consequently, space for productive spending—such as research, innovation, education quality, healthcare, and industrialisation—is marginalised. As Joseph Stiglitz (2019) noted, the quality of government spending is far more crucial than its quantity. Nations that successfully leap into becoming economic giants are those that treat the budget as a tool for transformation, not merely a stabilisation bumper.

Furthermore, we cannot ignore the growing debt burden. Although the debt ratio remains below the safe limit of 40% of GDP, the interest payment burden is becoming concerning. In the 2026 APBN structure, the allocation for debt interest payments is estimated to exceed Rp500 trillion. This serves as a loud alarm, as much of our fiscal space is being drained by debt rather than funding the future. This is exacerbated by an economic growth engine heavily reliant on household consumption (contributing over 53% to GDP), which does not generate significant employment. The World Bank (2025) warned that without strength in the manufacturing and value-added export sectors, it will be impossible for Indonesia to escape the middle-income trap.

To ensure the APBN becomes a growth engine rather than just a ‘firefighter’, two key strategies are recommended. First, increasing revenue: Tax reform must move beyond administrative comfort. The government must courageously expand the tax base fairly, including exploring progressive taxes for the ultra-wealthy and increasing non-tax state revenue (PNBP) from the utilisation of State-Owned Assets (BMN). Additionally, the digital economy, projected by Google-Temasek-Bain to reach US$144 billion, must be optimised.

Second, reducing expenditure: The culture of bureaucratic corporatisation—wasting budgets on ceremonial spending, low-output official travel, and unproductive ‘monumental’ projects—must stop. Political appointments that erode the APBN for the sake of political patronage should be reduced. Through the example of its leaders, the state must stop displaying luxury amidst the pressure on people’s purchasing power by adopting a simple and dignified lifestyle. Efficiency is not about cutting public budgets, but about ensuring optimal value for money.

In conclusion, while the APBN is becoming more modern and digital, it has not yet fully levelled up. Our fiscal instruments are very clever at extinguishing the flames of crisis, but they lack the power to build a solid new foundation. Facing the crucial years leading to ‘Indonesia Emas 2045’, fiscal targets must no longer merely aim to survive at a psychological 5% level. The APBN must be transformed into a strategic weapon that drives productivity and accelerates industrialisation.